While the prospect of a Walmart in each of the five boroughs of New York City has been met with major opposition, the retailer inked a relatively easier deal in South Africa. Last week, Walmart Stores Inc., acquired 51% of the shares of Massmart Holdings Limited for ZAR148 per Massmart ordinary share, or $20.82 per share.
In a press statement, Doug McMillon, President and CEO of Walmart International, said, “We continue to be excited by the opportunity to invest in Massmart’s business and to accelerate its growth and expansion in South Africa. The more we learn about South Africa and the surrounding countries the more we are convinced that this is an important region with attractive growth characteristics. This combination fits perfectly with our strategy to enter high growth markets in which we can apply our global expertise and generate strong returns.”
”This may be a good deal for Walmart and possibly for Massmart. It’s quite likely that – especially in light of the meltdown – Walmart has faced, or is facing a saturated market right now in the U.S. and will benefit from new markets,” notes African business expert Mojúbàolú Olúfúnké Okome, Professor of Political Science at Brooklyn College. “South Africa provides such an opportunity and Massmart has done some of the groundwork since it has a successful business. Walmart can only gain from this. Massmart gets to partner with an internationally recognized business.”
Walmart also said it will continue to support Massmart´s cooperation with South Africa´s Broad Based Black Economic Empowerment (BEE). But based on the various labor complaints Walmart has faced in the U.S., Okome is skeptical. “For South African workers, whether or not they’re treated in a respectful and equitable manner depends on the labor laws, affirmative action and equal opportunity laws in South Africa and how well they are enforced. I think the labor laws there are stronger than in many other African countries,” Okome points out. “There is also a powerful labor movement. As long as the workers are unionized, they’ll have more protection from abuses. However, since Walmart has the reputation of discrimination on the basis of race and gender, South African workers ought to be doubly vigilant and should be prepared to resist such treatment.”
In the United States, Walmart has often been accused of causing smaller mom-and-pop stores to close as they are unable to compete with a chain the size of Walmart. Whether this will be the case in South Africa, Okome says depends on how much the government supports small business. “A big part of the responsibility also lies with the South African government, which should ensure that foreign companies that seek to do business there are not given carte blanche to exploit its people. Oftentimes the competition for foreign direct investment in the developing world tends to produce a ‘race to the bottom’ kind of situation where labor protection is thrown out the window. This should not be the case,” says Okome. “It is the responsibility of the South African government to ensure that its people have good legal protections and enforceable rights. These businesses should also pay taxes, and use socially conscious business practices. With such conditions in place, foreign investment is okay.”
Wal-Mart has 8,692 retail units in 15 countries and sales of $405 billion in 2010. Massmart Holdings operates in 14 countries in sub-Saharan Africa and has 288 stores.
The deal is expected to be finalized by the end of the year.